Can credit cards look at your credit report without your authorization (and reduce existing credit limits)

Question

Just received a somewhat disturbing email where several of my credit cards from Citi have had their limits reduced. Email quoted / enclosed below.

Q: I did not authorize for them to look up my credit report - so were they allowed to do that? They claim it was from a consumer reporting agency. Does this mean this wasn't a credit check?

My credit limits were vastly reduced to basically 0 for all of these existing accounts. (The ones that had balances on them were reduced to just slightly above the balance.)

(N.B. Previous credit limit was $15,000)

There was a recent review of your account and credit information. As a result, we have revised the credit limit to $300. This decision was based on the information obtained from a consumer reporting agency. Specifically, your credit report indicates a substantial number of debts owed to other creditors. Your current account balance is $0.00

We're online

Please visit Citi Online to view your current account information. If you've enrolled in Electronic Communications, please check the Document Center for more information. Otherwise, a letter has been mailed to you and should be received within the next 7-10 days. This is the most up to date information available to our credit specialists. If you believe your credit limit has been reduced due to inaccurate information on your credit bureau report, and such inaccurate information has been corrected on your report, please visit Citi Online within the next 60 days to see if you qualify for a credit limit increase.

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Update, for those curious on my current credit status and its possible relations to this Citi message.

I just checked creditkarma and I don't see anything in derogatory marks... Nothing is in Collections. There are some accounts with marks like closed on consumer request and also closed due to inactivity. However, I am using 48% of my credit across 27 accounts with slightly less than a 5 year age of credit history. Payments @ 100%. Last hard credit inquiries all listed at over a year ago. My score is currently rather low.

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Update: finally had time to log in and write this letter. (For some reason, in the wee hours at 3 am, the Citi portal is often down)

I notice that my credit line has been dramatically reduced suddenly.

I would like to provide information to request that my credit lines be re-instated to their original amounts.

I am a software engineer based in Silicon Valley with over 20+ years of experience. My regular annual income exceeds $250,000. My credit score is not the best as recently, as I have taken out a few loans to start a startup in the past year.

Please note that my payment is at 100% on time with all creditors.

I have been a loyal Citi credit card customer for over 10 years and that my accounts have always been in great standing.

Currently, my credit lines for Citi have been set so low that it would be very inconvenient for me to use these cards.

I'd like to continue to be an active Citi customer.

Please set my credit lines back to their original amounts.

Thank you.

Answer 1

Yes.

Check your credit-card agreement that you signed. You will have given them authorization to periodically perform "soft" pulls of your credit report to recompute your credit score and adjust their risk-calculation for your account. This is routine.

Note that this is not a "hard" pull and this will not directly affect your credit score.

...but the fact your credit-limits have all been reduced to near-useless levels will severely negatively affect your credit-score because your Credit Utilization ratio, which is the biggest factor in probably all credit-score calculations, is now even higher than it was before.

Speak to Citi immediately and ask what happened - but also check your credit report ( AnnualCreditReport.com, CreditKarma.com, etc) and see if anything happened.

...though I note that they gave their main reason in the email they sent you:

Your credit report indicates a substantial number of debts owed to other creditors

As it is, your current credit utilization is too high - and your bank deems you at risk of defaulting if you were to use any more of your existing credit, so by limiting the amount of credit you can use (in this case, quite severely) they in-turn limit the risk from having you as a customer. For them to do it this much is unusual, so I suspect you have maxed out a large number of cards - and also that Citi knows what your annual income is (they usually ask you when you apply) and they've determined that with your current income you would not be able to reliably pay both themselves and your other existing creditors back.

As an anecdote, I've gone through periods where my entire credit utilization across all of my cards was over 60%, however my total available credit was well within my abilities to pay it all back within a year - I never suffered a reduced credit limit, and after getting my total utilization down to 20% I was able to successfully apply for new cards with much higher credit limits.

Otherwise, if it weren't for this, I'd suggest that if you haven't used your account in a long while, the bank might reduce your available credit to reduce their risk... but not to levels like these. In my own experience I've noticed banks will raise the interest rate on my revolving credit accounts rather than reduce my available credit - I've never had an involuntary credit limit reduction myself... so far.

Answer 2

I don't know the details of the law on this, but potential lenders check your credit all the time, not only without your permission but without even telling you. If you already have an account with them, they then adjust your credit limit accordingly. If you don't have an account with them, then if your credit looks good they start sending you offers. This kind of check is called a "soft check" and does not affect your credit score. If you apply for a new loan, then they do a "hard check" which does affect your credit score.

As to why they reduced your credit limit, well, the letter you quote would seem to give the reason: you have too much money in outstanding loans. Yes, 40% of your current credit limit is high but not necessarily outrageous of itself. But how much do you own compared to your income? The total of my credit limit across all my credit cards is like 6 months income. I wouldn't loan me that much if it was my money.